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Whiplash claims increase and so will the cost of your car insurance

19 October 2012

No one likes being involved in a road accident; it’s life-threatening, dangerous, inconvenient and expensive. It’s the only ever time you will be glad to be shelling out hundreds of pounds on insurance every year.

This is all fine if you’re involved in an accident, but you could soon see the cost of your car insurance rocket just to cover industry costs of other people’s accidents! This is a direct result of whiplash culture.

Figures show that the number of whiplash claims has increased despite a drop in the number of road accident injuries.

The Institute and Faculty of Actuaries recently released a report claiming that third party injury claims have increased by a staggering 40%.

Police data, however shows that that there has been a 20% fall in the number of accidents involving injuries since 2006.

The frequency of third party injury claims has also shot up by 6%. Yet this is a huge contrast against the 11% fall in accidents.

The report, which looks at third party motor UK claims in particular, revealed that the hotspot for claims was in Birmingham. The region contributed to 11 of the top 20 worst postcodes for third party injury.

Scotland had the lowest ratio of third party injury claims to third party damage claims of anywhere in the UK.

David Brown, chairman of the Institute and Faculty of Actuaries UK, said:

“All of the updated data that we have collated supports the conclusion that claims management companies have had a marked effect on the number of small injury, whiplash like, claims.”

How does this affect you?

The question you have to ask is how much does this cost? Well, the research found that the average small third party injury claim in 2011 was £8,400.

This highlights an increase in the average size of small claims, which has been a growing trend since 2005. A small claim excludes any that are in excess of £100,000, therefore excluding serious personal injury claims.

There was a 19% increase in third party injury claims costs in 2011 which led to an estimated £400 million increase to insurers. This typically trickles down to consumers who end up footing the bill on their insurance policies to cover industry costs.

However, the report suggested that this is not the case and insurers have not thrown the cost on to consumers. This is because UK car insurance premiums have fallen by 7.1% over the last 12 months.

“This increase in claims has cost the insurance industry what we estimate to be £400m, but despite this the average cost of a UK motor insurance policy is decreasing. This is good news for the consumer, but it does raise the question of how sustainable this is for insurers,” Mr Brown added.

Car insurance industry review

Despite the report suggesting that premiums have fallen, the car insurance industry has come under scrutiny as many feel that costs and premiums are unnecessarily high.

The Office of Fair Trading (OFT) recently referred the issue to the Competition Commission for a thorough investigation of the market.

The regulator found that the structure of the market was causing costs to be higher and that ‘at-fault’ drivers have no control over how much is spent on repairs or replacement vehicles for ‘not-at-fault’ drivers.

OFT chief executive Clive Maxwell said: “The insurers of at-fault drivers appear to have little control over the bills they must pay, and this may be leading to higher costs for them and ultimately higher premiums for motorists.”

The OFT provisionally decided in May that the market, which is worth an estimated £9.4 billion in the UK, needed further investigation.  The Competition Commission has two years to report on the matter, so until then premiums could still rise.

Gender discrimination

From 21 December, it will be illegal for insurance firms to charge policies based on the sex of an individual.

Under an EU reform, it will now be discriminative for insurers to use gender as factor when charging insurance.

In effect women, who are typically charged less as they are seen as safer drivers, will now see their premiums rocket to match their male counterparts.

Figures show young men are 10 times more likely to be killed or injured than a driver aged over 35. The average insurance claim made by a young male driver is around £4,500 compared to a middle aged driver’s claim of £1,200.

This is the main reason why men pay up to 40% more than women; however, it’s all going to be scrapped. Women could now face premiums hikes of up to £300.

Compare car insurance with MoneyExpert before premiums rise or the gender directive comes into force.

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